Economic freedom leads to prosperity

January 17, 2011

Freedom New Mexico

The 2011 “Index of Economic Freedom,” compiled by the conservative Heritage Foundation and the Wall Street Journal, contains some good news about much of the world, but disturbing news about the United States.

The good news first. The global average for economic freedom inched up slightly from 59.4 to 59.7 during the last year measured. The scores of 117 economies improved, and 58 got worse. Perhaps most encouraging is that sub-Saharan Africa, although still the least economically free region in the world, saw the most improvement, followed by the South and Central American-Caribbean region. The Middle East, North Africa and Asia also recorded gains. Considering the recent financial turmoil, the losses in Europe were slight, and 26 of 43 countries still improved.

The bad news is that the United States, which used to rank in the top five for economic freedom, has slipped to ninth place in the world and saw its economic freedom continue to decline. Since the index ranks only countries scoring 80 or more points on a 100-point scale (based on 10 criteria including protection of property rights, business freedom, trade freedom and the like) as “free” and the U.S. got 77.8, the United States is now classified as only “mostly free.”

The reasons for this slippage include dramatic increases in government spending and deficits and interventions in the economy that have increased economic uncertainty and sapped investor confidence.

Why is economic freedom important? Freedom is interrelated, that is, if one aspect of freedom is threatened, other aspects are as well. It is difficult to exercise freedom of speech if you don’t have access to the means of expressing yourself. The old Soviet Union banned private ownership of mimeograph machines, for example. In addition, countries with a great deal of economic freedom tend to have more economic growth, higher per capita incomes, lower levels of poverty, and their citizens experience higher overall levels of well-being as measured by health, education, security, and perceived happiness.